Every retirement account trades a tax break for rules about who may contribute, how much, and when the money may leave. These questions mostly test whether you can match the right rule to the right account.
An individual retirement account (IRA) is a tax-favored account your client opens on their own, apart from any employer. Under Internal Revenue Code (IRC) sections 219 and 408A, your client may contribute up to $7,500 for 2026. Anyone 50 or older adds a $1,100 catch-up, for $8,600 in total.
Three rules shape that number:
- Earned income: A contribution is never more than earned income, meaning wages or self-employment earnings. Dividends, interest and pensions don't count.
- Spousal IRA: On a joint return, a spouse with little or no income can contribute from the working spouse's earnings.
- Shared limit: The limit is shared across a person's traditional and Roth IRAs. If a client under 50 puts $5,000 in a Roth, only $2,500 can go to a traditional...
Common mistakes
- Applying 25% to net earnings: A sole proprietor with $150,000 of net earnings gets a $30,000 employer contribution, not $37,500.
- Using stale limits: Answers built on $7,000, $23,000 or $69,000 use 2024 figures. A 61-year-old's 401(k) catch-up is $11,250, not $8,000.
- Starting the Roth clock at deposit: An April 2027 contribution for tax year 2026 starts the five years on January 1, 2026.
Bottom line
- IRA 2026: $7,500 plus $1,100 at 50 or older, never above earned income, shared across traditional and Roth IRAs, with no age cap.
- Traditional IRA deduction phase-outs for 2026 are $81,000 to $91,000 single and $129,000 to $149,000 joint if covered, or $242,000 to $252,000 if only the spouse is.
- Nondeductible contributions become basis, which comes out pro rata across all of a client's traditional IRAs.
- Roth IRA phase-outs are $153,000 to $168,000 single and $242,000 to $252,000 joint, while conversions have no income limit and the owner takes no RMDs.
Exam shortcut
Work every retirement question in the same order: identify the account, then the client's age and income, then the 2026 figure. Strike any choice built on older numbers ($7,000, $23,000, $23,500, $69,000) before weighing the rest. Read the stem signals. "Ages 60 to 63" means an $11,250 catch-up. "Sole proprietor" means multiply net earnings by 20%. "Spouse is covered, client isn't" means the $242,000 to $252,000 range.
The full lesson (about 4,155 words, 28 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- C24
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